Extra Repayments

Making extra repayments on your home loan may be far from top of mind when you've just taken on one of the biggest financial commitments in your lifetime. But adding just a few dollars extra per week can make a significant difference in the long run.

The natural reluctance to make extra repayments comes from wanting to spend more and live comfortably now, rather than later. We’re all too aware of the next car, iPhone, or holiday we want, while the savings we make from making extra repayments towards our home loan are hard to imagine.

Australians who do make regular extra repayments understand the fiscal benefits, and are disciplined enough to not spend the extra cash when they have it. But this doesn’t make them less fun - they’ll be the ones enjoying more spending power, bigger meals, and earlier retirements down the track.

What are the savings?

Through the wonders of compound interest, every extra dollar you send towards your home loan now will save you much more down the track (assuming that inflation is stable).

On a $300,000 mortgage at 7 percent over 25 years, you can expect monthly repayments of around $2200, and a total of $636,000 worth of principal and interest to repay over the quarter century.

However, by culling some luxury expenses here and there to pay an additional $200 a month – or just $6 per day – you could save more than $76,000 over the life of the loan and be mortgage-free almost 5 years sooner.

How do I make repayments?

Most financial institutions will have an efficient system for allowing you to choose how much your extra repayments will be. However, extra repayments are not a feature in every home loan, so make sure to discuss this during your application.

Extra repayments can also be regular (weekly, fortnightly, monthly), or come as a lump sum. The latter means that you simply pay once, and is often used when the borrower has some unexpected extra cash – for example a salary bonus.

Compare home loans in Australia that allow extra repayments at RateCity, and shorten your mortgage journey for a more comfortable future.